... might also be a reason for investors' valuation of the share at $85 compared to its original value of $25, thus contributing to the difference in equities. 2 Effects of Software Capitalization By writing down research and development costs as expenses as and when they occur, instead of following SFAS No. 86, Microsoft attempted not to capitalize/convert the expenses incurred after the technological feasibility point. Effects of this: * Increase in expenses due to R&D and hence decrease in Net income on their Income statement * If capitalized, the capitalized amount will be conceived or realized as an asset on Balance sheet. Hence, on Balance sheet, Microsoft's assets were of lower worth. 2.a Effect on financial statements 2.a.1 Income statement From the revised Income statement worksheets, it can be seen that if 60% of the R&D expenses are capitalized and amortized for next 2 years then the Net income will increase by $1117.8 Million, $1001.7Million and ...

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